Correlation Between Gap, and Tapestry

Can any of the company-specific risk be diversified away by investing in both Gap, and Tapestry at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Gap, and Tapestry into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Gap, and Tapestry, you can compare the effects of market volatilities on Gap, and Tapestry and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Gap, with a short position of Tapestry. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gap, and Tapestry.

Diversification Opportunities for Gap, and Tapestry

0.82

Correlation Coefficient

Gap,  Tapestry

Very poor diversification

The 3 months correlation between Gap, and Tapestry is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding The Gap, and Tapestry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tapestry and Gap, is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on The Gap, are associated (or correlated) with Tapestry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tapestry has no effect on the direction of Gap, i.e., Gap, and Tapestry go up and down completely randomly.

Pair Corralation between Gap, and Tapestry

Considering the 90-day investment horizon The Gap, is expected to under-perform the Tapestry. In addition to that, Gap, is 1.36 times more volatile than Tapestry. It trades about -0.16 of its total potential returns per unit of risk. Tapestry is currently generating about 0.4 per unit of volatility. If you would invest  6,139  in Tapestry on October 11, 2024 and sell it today you would earn a total of  714.00  from holding Tapestry or generate 11.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

The Gap,  vs.  Tapestry

Gap,

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Gap, are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Gap, may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Tapestry

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tapestry are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Tapestry reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gap, and Tapestry

The main advantage of trading using opposite Gap, and Tapestry positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gap, position performs unexpectedly, Tapestry can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Tapestry will offset losses from the drop in Tapestry's long position.

The idea behind The Gap, and Tapestry pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the FinTech Suite module to use AI to screen and filter profitable investment opportunities.